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Courier 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 25, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to              

 

Commission file number 0-7597

 

COURIER CORPORATION

(Exact name of registrant as specified in its charter)

 

Massachusetts

 

04-2502514

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

15 Wellman Avenue, North Chelmsford, Massachusetts

 

01863

(Address of principal executive offices)

 

(Zip Code)

 

(978) 251-6000

(Registrant’s telephone number, including area code)

 

NO CHANGE

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  Noo

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non- accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at August 1, 2011

Common Stock, $1 par value

 

12,098,479 shares

 

 

 



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands except per share amounts)

 

 

 

QUARTER ENDED

 

NINE MONTHS ENDED

 

 

 

June 25,

 

June 26,

 

June 25,

 

June 26,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

61,894

 

$

64,919

 

$

185,708

 

$

186,902

 

Cost of sales (Note H)

 

47,174

 

51,036

 

150,509

 

141,423

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

14,720

 

13,883

 

35,199

 

45,479

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses (Note H)

 

11,242

 

10,877

 

36,353

 

35,374

 

Impairment charge (Notes A and I)

 

8,608

 

 

8,608

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(5,130

)

3,006

 

(9,762

)

10,105

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

194

 

130

 

645

 

367

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss)

 

(5,324

)

2,876

 

(10,407

)

9,738

 

 

 

 

 

 

 

 

 

 

 

Income tax provision (benefit) (Note C)

 

(2,195

)

1,106

 

(4,127

)

3,749

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(3,129

)

$

1,770

 

$

(6,280

)

$

5,989

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share (Note E):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.26

)

$

0.15

 

$

(0.52

)

$

0.50

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

(0.26

)

$

0.15

 

$

(0.52

)

$

0.50

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.21

 

$

0.21

 

$

0.63

 

$

0.63

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

2



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

June 25,

 

September 25,

 

 

 

2011

 

2010

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

48

 

$

107

 

Investments

 

1,266

 

1,090

 

Accounts receivable, less allowance for uncollectible accounts of $1,112 at June 25, 2011 and $968 at September 25, 2010

 

31,570

 

35,123

 

Inventories (Note B)

 

41,053

 

39,933

 

Deferred income taxes

 

3,961

 

4,109

 

Recoverable income taxes

 

4,212

 

1,257

 

Other current assets

 

1,693

 

1,131

 

 

 

 

 

 

 

Total current assets

 

83,803

 

82,750

 

 

 

 

 

 

 

Property, plant and equipment, less accumulated depreciation of $179,996 at June 25, 2011 and $166,528 at September 25, 2010

 

101,095

 

103,009

 

 

 

 

 

 

 

Goodwill (Notes A and I)

 

16,288

 

24,697

 

Other intangibles, net (Note A)

 

2,405

 

2,712

 

Prepublication costs, net (Note A)

 

7,261

 

7,734

 

Deferred income taxes

 

2,737

 

 

Other assets

 

1,242

 

1,292

 

 

 

 

 

 

 

Total assets

 

$

214,831

 

$

222,194

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

3



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

June 25,

 

September 25,

 

 

 

2011

 

2010

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

1,788

 

$

1,794

 

Accounts payable

 

11,959

 

14,399

 

Accrued payroll

 

6,983

 

8,792

 

Accrued taxes

 

514

 

617

 

Other current liabilities (Note H)

 

8,162

 

6,566

 

 

 

 

 

 

 

Total current liabilities

 

29,406

 

32,168

 

 

 

 

 

 

 

Long-term debt

 

27,768

 

21,904

 

Deferred income taxes

 

 

1,385

 

Other liabilities (Note H)

 

7,415

 

3,788

 

 

 

 

 

 

 

Total liabilities

 

64,589

 

59,245

 

 

 

 

 

 

 

Stockholders’ equity (Note F):

 

 

 

 

 

Preferred stock, $1 par value - authorized 1,000,000 shares; none issued

 

 

 

Common stock, $1 par value - authorized 18,000,000 shares; issued 12,098,000 at June 25, 2011 and 12,057,000 at September 25, 2010

 

12,098

 

12,057

 

Additional paid-in capital

 

18,904

 

17,762

 

Retained earnings

 

119,938

 

133,828

 

Accumulated other comprehensive loss

 

(698

)

(698

)

 

 

 

 

 

 

Total stockholders’ equity

 

150,242

 

162,949

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

214,831

 

$

222,194

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

4



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 

 

 

NINE MONTHS ENDED

 

 

 

June 25,

 

June 26,

 

 

 

2011

 

2010

 

Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

(6,280

)

$

5,989

 

Adjustments to reconcile net income (loss) to cash provided from operating activities:

 

 

 

 

 

Depreciation and amortization

 

17,437

 

15,527

 

Impairment charge (Notes A and I)

 

8,608

 

 

Stock-based compensation

 

1,072

 

1,012

 

Deferred income taxes

 

(3,974

)

674

 

Gain on disposition of assets

 

 

(183

)

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

3,553

 

(1,785

)

Inventory

 

(1,120

)

(2,657

)

Accounts payable

 

(2,440

)

7

 

Accrued and recoverable taxes

 

(3,058

)

(2,591

)

Other elements of working capital

 

(775

)

608

 

Other long-term, net

 

3,515

 

(249

)

 

 

 

 

 

 

Cash provided from operating activities

 

16,538

 

16,352

 

 

 

 

 

 

 

Investment Activities:

 

 

 

 

 

Capital expenditures

 

(11,670

)

(12,635

)

Acquisition (Note G)

 

 

(3,000

)

Prepublication costs

 

(3,218

)

(3,151

)

Proceeds on disposition of assets

 

 

590

 

Short-term investments

 

(176

)

(47

)

 

 

 

 

 

 

Cash used for investment activities

 

(15,064

)

(18,243

)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Long-term debt borrowings, net

 

5,858

 

8,819

 

Cash dividends

 

(7,610

)

(7,548

)

Proceeds from stock plans

 

219

 

241

 

 

 

 

 

 

 

Cash provided from (used for) financing activities

 

(1,533

)

1,512

 

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(59

)

(379

)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

107

 

492

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$

48

 

$

113

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

Contingent consideration (Note G)

 

 

$

850

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

5



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

A.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Financial Statements

 

The consolidated condensed balance sheet as of June 25, 2011, and the consolidated condensed statements of operations for the three-month and nine-month periods ended June 25, 2011and June 26, 2010, and the statements of cash flows for the nine-month periods ended June 25, 2011 and June 26, 2010 are unaudited.  In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of such financial statements have been recorded.  The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  The balance sheet data as of September 25, 2010 was derived from audited year-end financial statements, but does not include disclosures required by generally accepted accounting principles.  It is suggested that these interim financial statements be read in conjunction with the Company’s most recent Annual Report on Form 10-K for the year ended September 25, 2010.

 

Goodwill and Other Intangibles

 

The Company evaluates possible impairment annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. These tests are performed at the reporting unit level, which is the operating segment or one level below the operating segment. The goodwill impairment test is a two-step test.  In the first step, the Company compares the fair value of the reporting unit to its carrying value.  If the fair value of the reporting unit exceeds the carrying value of its net assets, then goodwill is not impaired and the Company is not required to perform further testing.  If the carrying value of the net assets of the reporting unit exceeds its fair value, then a second step is performed in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of its goodwill (see Note I).

 

“Other intangibles” includes customer lists related to Moore-Langen Printing Company, Inc. (“Moore Langen”) as well as customer lists and technology related to Highcrest Media LLC (“Highcrest Media”), which are being amortized over 10-year and 5-year periods, respectively.  Amortization expense related to customer lists and technology was approximately $100,000 and $150,000 in the third quarters of fiscal 2011 and 2010, respectively. For the first nine months, amortization expense was approximately $300,000 and $330,000 in fiscal years 2011 and 2010, respectively.

 

Fair Value Measurements

 

Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded at fair value on a nonrecurring basis, generally as a result of impairment charges.  Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Assets measured at fair value on a nonrecurring basis include long-lived assets and goodwill and other intangible assets. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:

 

Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.

 

Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

 

6



 

Fair Value of Financial Instruments

 

Financial instruments consist primarily of cash, investments in mutual funds (Level 1), accounts receivable, accounts payable, debt obligations and contingent consideration (Level 3 — see Note G).  At June 25, 2011 and September 25, 2010, the fair value of the Company’s financial instruments approximated their carrying values.  The fair value of the Company’s revolving credit facility approximates its carrying value due to the variable interest rate and the Company’s current rate standing.

 

Prepublication Costs

 

Prepublication costs, associated with creating new titles in the specialty publishing segment, are amortized to cost of sales using the straight-line method over estimated useful lives of three to five years.  In the third quarter of fiscal 2011, an impairment charge of approximately $200,000 was recorded for underperforming titles (see Note I).

 

New Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amendments to disclosure requirements for common fair value measurement. These amendments, effective for interim and annual periods beginning on or after December 15, 2011, result in common definitions of fair value and common requirements for measurement of and disclosure requirements between accounting principles generally accepted in the United States and International Financial Reporting Standards. Consequently, the amendments change some fair value measurement principles and disclosure requirements. The implementation of this amended accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In June 2011, the FASB issued amendments to disclosure requirements for the presentation of comprehensive income. This guidance, effective for the interim and annual periods beginning on or after December 15, 2011, requires the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The implementation of this amended accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

B.            INVENTORIES

 

Inventories are valued at the lower of cost or market.  Cost is determined using the last-in, first-out (“LIFO”) method for approximately 51% and 54% of the Company’s inventories at June 25, 2011 and September 25, 2010, respectively.  Other inventories, primarily in the specialty publishing segment, are determined on a first-in, first-out (“FIFO”) basis.  Inventories consisted of the following:

 

 

 

(000’s Omitted)

 

 

 

June 25,
2011

 

September 25,
2010

 

Raw materials

 

$

7,200

 

$

5,557

 

Work in process

 

7,949

 

9,371

 

Finished goods

 

25,904

 

25,005

 

Total

 

$

41,053

 

$

39,933

 

 

C.            INCOME TAXES

 

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known and applies that rate to its ordinary year-to-date earnings or losses. The effect of discrete items, such as unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The effective tax rates for the first nine months of fiscal 2011 and 2010 were 39.7% and 38.5%, respectively. The higher rate in fiscal 2011 resulted in part from the state tax impact of the impairment and restructuring charges.

 

7



 

D.            OPERATING SEGMENTS

 

The Company has two operating segments: book manufacturing and specialty publishing. The book manufacturing segment offers a full range of services from production through storage and distribution for religious, educational and specialty trade book publishers. In January 2010, the Company acquired Highcrest Media, which has been included in the book manufacturing segment (see Note G).  The specialty publishing segment consists of Dover Publications, Inc., Federal Marketing Corporation, Inc., d/b/a Creative Homeowner, and Research & Education Association, Inc. (“REA”).

 

Segment performance is evaluated based on several factors, of which the primary financial measure is operating income.  Operating income is defined as gross profit (sales less cost of sales) less selling and administrative expenses, and includes severance and other restructuring costs but excludes stock-based compensation.  As such, segment performance is evaluated exclusive of interest, income taxes, stock-based compensation, intersegment profit, and impairment charges.  The elimination of intersegment sales and related profit represents sales from the book manufacturing segment to the specialty publishing segment.

 

The following table provides segment information for the three-month and nine-month periods ended June 25, 2011 and June 26, 2010.

 

 

 

(000’s Omitted)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 25,

 

June 26,

 

June 25,

 

June 26,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net sales:

 

 

 

 

 

 

 

 

 

Book manufacturing

 

$

54,997

 

$

56,838

 

$

163,627

 

$

161,659

 

Specialty publishing

 

9,872

 

10,854

 

30,760

 

34,136

 

Elimination of intersegment sales

 

(2,975

)

(2,773

)

(8,679

)

(8,893

)

Total

 

$

61,894

 

$

64,919

 

$

185,708

 

$

186,902

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss):

 

 

 

 

 

 

 

 

 

Book manufacturing operating income

 

$

5,050

 

$

3,727

 

$

3,799

 

$

12,224

 

Specialty publishing operating loss

 

(1,154

)

(424

)

(3,949

)

(925

)

Impairment charge (Note I)

 

(8,608

)

 

(8,608

)

 

Stock-based compensation

 

(366

)

(329

)

(1,072

)

(1,012

)

Elimination of intersegment profit

 

(52

)

32

 

68

 

(182

)

Interest expense, net

 

(194

)

(130

)

(645

)

(367

)

Total

 

$

(5,324

)

$

2,876

 

$

(10,407

)

$

9,738

 

 

E.         NET INCOME PER SHARE

 

The following is a reconciliation of the outstanding shares used in the calculation of basic and diluted net income per share.  Potentially dilutive shares, calculated using the treasury stock method, consist of shares issued under the Company’s stock option plans.  In the third quarter and first nine months of fiscal 2011, approximately 36,000 and 34,000 potentially dilutive shares, respectively, were excluded due to the Company incurring a loss in those periods.

 

 

 

(000’s Omitted)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 25,
2011

 

June 26,
2010

 

June 25,
2011

 

June 26,
2010

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding for basic

 

11,996

 

11,928

 

11,978

 

11,910

 

Effect of potentially dilutive shares

 

 

34

 

 

27

 

Average shares outstanding for diluted

 

11,996

 

11,962

 

11,978

 

11,937

 

 

8



 

F.             STOCK-BASED COMPENSATION

 

The Company records stock-based compensation expense for the cost of stock options and stock grants as well as shares issued under the Company’s 1999 Employee Stock Purchase Plan, as amended. The fair value of each option awarded is calculated on the date of grant using the Black-Scholes option-pricing model. Stock-based compensation recognized in selling and administrative expenses in the accompanying financial statements in the third quarters of fiscal 2011 and 2010 was $366,000 and $329,000, respectively.  The related tax benefit recognized in the third quarters of fiscal 2011 and 2010 was $132,000 and $117,000, respectively.  For the first nine months of fiscal 2011 and 2010, stock-based compensation was $1,072,000 and $1,012,000, respectively, and the related tax benefit recognized was $385,000 and $361,000, respectively.  Unrecognized stock-based compensation cost at June 25, 2011 was $1.9 million, to be recognized over a weighted-average period of 1.8 years.

 

Stock Incentive Plan: In January 2011, stockholders approved the adoption of the Courier Corporation 2011 Stock Option and Incentive Plan (the “2011 Plan”).  Under the plan provisions, stock grants as well as both non-qualified and incentive stock options to purchase shares of the Company’s common stock may be granted to key employees up to a total of 600,000 shares.  The 2011 Plan replaced the Company’s Amended and Restated 1993 Stock Incentive Plan (the “1993 Plan”).  No further options will be granted under the 1993 Plan.  Under the 2011 Plan, the option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant.  The Company annually issues a combination of stock options and stock grants to its key employees. Stock options and stock grants generally vest over three years.

 

The following is a summary of option activity under the 2011 Plan and the 1993 Plan in the first nine months of fiscal 2011:

 

 

 

 

 

Weighted Average

 

 

 

Option
Shares

 

Exercise
Price

 

Remaining
Term (yrs)

 

Outstanding at September 25, 2010

 

518,437

 

$

21.94

 

 

 

Expired

 

(500

)

37.09

 

 

 

Outstanding at June 25, 2011

 

517,937

 

$

21.92

 

2.6

 

 

 

 

 

 

 

 

 

Exercisable at June 25, 2011

 

258,409

 

$

28.28

 

1.6

 

Available for future grants

 

600,000

 

 

 

 

 

 

There was no aggregate intrinsic value for options outstanding at June 25, 2011.  During the second quarter of fiscal 2011, 1,000 stock grants vested with a weighted-average fair value of $38.44 per share.  At June 25, 2011, there were 82,274 non-vested stock grants outstanding with a weighted-average fair value of $16.51.

 

Directors’ Option Plans: In January 2010, stockholders approved the Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”).  Under the plan provisions, stock grants as well as non-qualified stock options to purchase shares of the Company’s common stock may be granted to non-employee directors up to a total of 300,000 shares.  The 2010 Plan replaced the previous non-employee directors’ plan, which had been adopted in 2005 (the “2005 Plan”). No further options will be granted under the 2005 Plan.  Under the 2010 Plan, the option price per share is the fair market value of stock at the time the option is granted and options have a term of five years. Stock options and stock grants generally vest over three years.

 

During the second quarter of fiscal 2011, 43,477 options were granted under the 2010 Plan.  The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model.  The key assumptions used to value the options granted were a risk-free interest rate of 2.0%, expected volatility of 48%, a dividend yield of 5.7%, and an expected life of five years, resulting in a weighted average fair value of $3.98 per share.

 

9



 

The following is a summary of option activity under the 2010 Plan and the 2005 Plan in the first nine months of fiscal 2011:

 

 

 

 

 

Weighted Average

 

 

 

Option
Shares

 

Exercise
Price

 

Remaining
Term (yrs)

 

Outstanding at September 25, 2010

 

206,866

 

$

24.39

 

 

 

Granted

 

43,477

 

14.76

 

 

 

Expired

 

(49,572

)

32.89

 

 

 

Outstanding at June 25, 2011

 

200,771

 

$

20.20

 

2.8

 

 

 

 

 

 

 

 

 

Exercisable at June 25, 2011

 

121,846

 

$

24.04

 

2.0

 

Available for future grants

 

154,472

 

 

 

 

 

 

There was no aggregate intrinsic value for options outstanding at June 25, 2011.  During the second quarter of fiscal 2011, 11,767 stock awards were granted to non-employee directors with a weighted-average fair value of $14.76 per share.  Also during the second quarter of fiscal 2011, 4,396 stock grants vested with a weighted-average fair value of $13.71 per share. At June 25, 2011, there were 20,552 non-vested stock grants outstanding with a weighted-average fair value of $14.31. Directors may also elect to receive their annual retainer and committee chair fees as shares of stock in lieu of cash; 11,520 such shares were issued in the second quarter of fiscal 2011.

 

Employee Stock Purchase Plan: The Company’s 1999 Employee Stock Purchase Plan (“ESPP”), as amended, covers an aggregate of 637,500 shares of Company common stock for issuance under the plan.  Eligible employees may purchase shares of Company common stock at not less than 85% of fair market value at the end of the grant period.  During the second quarter of fiscal 2011, 18,089 shares were issued under the ESPP at a price of $12.13 per share. At June 25, 2011, there were 254,414 shares available for future issuances.

 

G.            BUSINESS ACQUISITION

 

On January 15, 2010, the Company acquired the assets of Highcrest Media, a Massachusetts-based provider of solutions that streamline the production of customized textbooks and other materials for use in colleges, universities and businesses.  The $3 million cash acquisition, which also had additional future “earn out” potential payments of up to $1.2 million, was accounted for as a purchase, and accordingly, Highcrest Media’s financial results are included in the book manufacturing segment in the consolidated financial statements from the date of acquisition.

 

The acquisition of Highcrest Media was recorded by allocating the fair value of consideration of the acquisition to the identified assets acquired, including intangible assets and liabilities assumed, based on their estimated fair value at the acquisition date.  The excess of the fair value of consideration of the acquisition over the net amounts assigned to the fair value of the assets acquired and liabilities assumed was recorded as goodwill. Goodwill and other intangibles are tax deductible. The Company also assumed operating leases for some of Highcrest Media’s equipment.

 

The purchase price allocation was as follows:

 

 

 

(000’s Omitted)

 

 

 

 

 

Accounts receivable

 

$

379

 

Inventories

 

41

 

Machinery, equipment and other long-term assets

 

272

 

Amortizable intangibles

 

1,930

 

Goodwill

 

1,517

 

Accounts payable and accrued liabilities

 

(289

)

Fair value of contingent “earn out” consideration

 

(850

)

Net cash paid

 

$

3,000

 

 

The future earn out potential payments were valued at acquisition at $850,000 using a probability weighted discounted cash flow model (Level 3 in the hierarchy) and may be paid out over three years

 

10



 

based on achieving certain revenue targets. A fair value assessment of the contingent earn out consideration payable was performed at June 25, 2011 resulting in recognition of $22,000 of expense in the third quarter and totaling $102,000 for the first nine months of fiscal 2011.  The first year’s revenue target was achieved and a resulting $400,000 payment was made in the second quarter of fiscal 2011, leaving a liability of $622,000 at June 25, 2011.

 

H.            RESTRUCTURING COSTS

 

In the second quarter of fiscal 2011, the Company recorded restructuring costs of $7.5 million associated with closing and consolidating its Stoughton, Massachusetts manufacturing facility due to the impact of technology and competitive pressures affecting the one-color paperback books in which the plant specialized.  Restructuring costs included $2.3 million for employee severance and benefit costs, $2.1 million for an early withdrawal liability from a multi-employer pension plan, and $3.1 million for lease termination and other facility closure costs.  Of the total $7.5 million of restructuring costs in the book manufacturing segment, $7.1 million was included in cost of sales and $0.4 million was included in selling and administrative expenses. Annual savings from this plant closure are projected to be approximately $4.5 million. The Company anticipates that payments of approximately $3 million associated with closing the Stoughton facility will be made by the end of fiscal 2011.  The remaining payments will be made over periods ranging from 4 years for the building lease obligation to 20 years for the liability related to the multi-employer pension plan.  At June 25, 2011, approximately $1.2 million of the restructuring payments were included in “Other current liabilities” and $3.8 million were included in “Other liabilities” in the accompanying consolidated balance sheet.  The following table depicts the accrual balances for these restructuring costs.

 

 

 

(000’s Omitted)

 

 

 

Restruc-
turing
Costs

 

Costs
Paid or
Settled

 

Accrual at
June 25,
2011

 

 

 

 

 

 

 

 

 

Employee severance and benefit costs

 

$

2,269

 

$

(1,878

)

$

391

 

Early withdrawal from multi-employer pension plan

 

2,100

 

 

2,100

 

Lease termination and other facility closure costs

 

3,103

 

(605

)

2,498

 

Total restructuring costs

 

$

7,472

 

$

(2,483

)

$

4,989

 

 

I.              IMPAIRMENT CHARGES

 

The Company evaluates possible impairment annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. These tests are performed at the reporting unit level, which is the operating segment or one level below the operating segment. The goodwill impairment test is a two-step test.

 

Borders has been one of REA’s most significant customers and the Borders situation described below has had a direct impact on REA’s sales and operating results.  On February 16, 2011, Borders filed for Chapter 11 bankruptcy protection and the Company recorded a charge of $750,000 associated with increasing the bad-debt provision for Borders. Borders was not successful in either reorganizing itself through the bankruptcy process or selling itself as a going concern.  As a result, in July 2011, Borders commenced liquidating its remaining stores and assets.  Faced with the prospect of Borders’ liquidation, significant store closings and the permanent loss of this important customer, the Company performed the step-one impairment test on REA’s goodwill.  After performing the step-one test, the Company determined that the fair value of REA at the end of the third quarter of fiscal 2011 was below its carrying value and as such the second step was required.  In arriving at this conclusion, the Company used a valuation methodology based on a discounted cash flow and a market value approach (Level 3 in the three-tier hierarchy — see Note A).  Key assumptions and estimates included revenue and operating income forecasts and the assessed growth rate after the forecast period. The second step of the impairment test for REA included estimating the fair value of the tangible and identified intangible assets and liabilities of the impaired reporting unit.  The implied fair value of goodwill is the residual of the total fair value of the reporting unit less the accumulated fair value of identified tangible and intangible assets and liabilities.  Based on the results of these valuations, the Company concluded it was necessary to record a pre-tax impairment charge of $8.4 million, representing all of REA’s goodwill.

 

11



 

The following table reflects the components of “Goodwill” at September 25, 2010 and June 25, 2011.

 

 

 

(000’s Omitted)

 

 

 

Book
Manufacturing

 

Specialty
Publishing

 

Total

 

 

 

 

 

 

 

 

 

Balance at September 25, 2010

 

$

16,288

 

$

8,409

 

$

24,697

 

Impairment charge

 

 

(8,409

)

(8,409

)

Balance at June 25, 2011

 

$

16,288

 

$

 

$

16,288

 

 

In addition, an impairment charge of approximately $200,000 for prepublication costs was recorded as a result of underperforming titles.

 

12



 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

 

 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

Critical Accounting Policies and Estimates:

 

The Company’s consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles.  The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes.  On an ongoing basis, management evaluates its estimates and judgments, including those related to collectibility of accounts receivable, recovery of inventories, impairment of goodwill and other intangibles, and prepublication costs.  Management bases its estimates and judgments on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.  Actual results may differ from these estimates.  The significant accounting policies which management believes are most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

 

Accounts Receivable.   Management performs ongoing credit evaluations of the Company’s customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness.  Collections and payments from customers are continuously monitored.  A provision for estimated credit losses is determined based upon historical experience and any specific customer collection risks that have been identified.  If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

Inventories.   Management records reductions in the cost basis of inventory for excess and obsolete inventory based primarily upon historical and forecasted product demand.  If actual market conditions are less favorable than those projected by management, additional inventory charges may be required.

 

Goodwill and Other Intangibles.  Other intangibles include customer lists, which are amortized on a straight-line basis over periods ranging from five to ten years. The Company evaluates possible impairment of goodwill and other intangibles at the reporting unit level, which is the operating segment or one level below the operating segment, on an annual basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  The Company completed its annual impairment test at September 25, 2010, which resulted in no change to the nature or carrying amounts of its intangible assets in its book manufacturing segment.  However, the Company determined that the fair value of Creative Homeowner at the end of fiscal 2010 was below its carrying value and a pre-tax impairment charge of $4.7 million was recorded, which represented 100% of Creative Homeowner’s goodwill and other intangible assets as well as $0.5 million of prepublication costs.  At the end of the third quarter of fiscal 2011, the Company determined that the fair value of REA was below its carrying value and a pre-tax impairment charge of $8.4 million was recorded, which represented 100% of REA’s goodwill.  Changes in market conditions or poor operating results could result in a decline in value of the Company’s goodwill and other intangible assets thereby potentially requiring an additional impairment charge in the future.

 

Prepublication Costs.   The Company capitalizes prepublication costs, which include the costs of acquiring rights to publish a work and costs associated with bringing a manuscript to publication such as artwork and editorial efforts. Prepublication costs are amortized on a straight-line basis over periods ranging from three to five years.  At the end of the third quarter of fiscal 2011, an impairment charge of approximately $200,000 was recorded for REA’s underperforming titles. Management regularly evaluates the sales and profitability of the products based upon historical and forecasted demand.  If actual market conditions are less favorable than those projected by management, additional amortization expense may be required.

 

13



 

Overview:

 

Courier Corporation, founded in 1824, is one of America’s leading book manufacturers and specialty publishers.  The Company has two operating segments: book manufacturing and specialty publishing.  The book manufacturing segment streamlines the process of bringing books from the point of creation to the point of use.  Based on sales, Courier is the third largest book manufacturer in the United States, offering services from prepress and production, through storage and distribution, as well as state-of-the-art digital print capabilities.  The specialty publishing segment consists of Dover Publications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”), and Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”).  Dover publishes over 9,000 titles in more than 30 specialty categories ranging from literature to paper dolls, and from music scores to clip art.  REA publishes test preparation and study-guide books and software for students from elementary school to college as well as professionals seeking advanced education or career certification.  Creative Homeowner publishes books on home design, decorating, landscaping, and gardening, and sells home plans.

 

Results of Operations:

 

 

 

FINANCIAL HIGHLIGHTS

 

 

 

(dollars in thousands except per share amounts)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 25,
2011

 

June 26,
2010

 

%
Change

 

June 25,
2011

 

June 26,
2010

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

61,894

 

$

64,919

 

-4.7

%

$

185,708

 

$

186,902

 

-0.6

%

Cost of sales

 

47,174

 

51,036

 

-7.6

%

150,509

 

141,423

 

6.4

%

Gross profit

 

14,720

 

13,883

 

6.0

%

35,199

 

45,479

 

-22.6

%

As a percentage of sales

 

23.8

%

21.4

%

 

 

19.0

%

24.3

%

 

 

Selling and administrative expenses

 

11,242

 

10,877

 

3.4

%

36,353

 

35,374

 

2.8

%

Impairment charge

 

8,608

 

 

 

 

8,608

 

 

 

 

Operating income (loss)

 

(5,130

)

3,006

 

 

 

(9,762

)

10,105

 

 

 

Interest expense, net

 

194

 

130

 

49.2

%

645

 

367

 

75.7

%

Pretax income (loss)

 

(5,324

)

2,876

 

 

 

(10,407

)

9,738

 

 

 

Income tax provision (benefit)

 

(2,195

)

1,106

 

 

 

(4,127

)

3,749

 

 

 

Net income (loss)

 

$

(3,129

)

$

1,770

 

 

 

$

(6,280

)

$

5,989

 

 

 

Net income (loss) per diluted share

 

$

(0.26

)

$

0.15

 

 

 

$

(0.52

)

$

0.50

 

 

 

 

Revenues in the third quarter of fiscal 2011 were $61.9 million, down 5% from the same period last year, while year-to-date revenues of $185.7 million were slightly lower than the first nine months last year. The Borders Group, Inc. (“Borders”) bankruptcy situation has adversely impacted both of the Company’s operating segments.  Book manufacturing segment revenues in the third quarter decreased by 3% to $55.0 million and increased by 1% to $163.6 million for the first nine months, compared to the same periods last year, reflecting a decline in trade sales resulting from the Borders’ store closings, which offset increased sales of college textbooks.  In the specialty publishing segment, revenues were $9.9 million in the third quarter and $30.8 million for the first nine months, down 9% and 10%, respectively, reflecting reduced sales to Borders of $650,000 in the third quarter and $2.4 million in the first nine months, compared with the corresponding periods last year.

 

Net loss was $3.1 million and $6.3 million for the third quarter and first nine months of fiscal 2011, respectively.  The Company recorded a pre-tax impairment charge of $8.6 million, or $0.43 per diluted share, primarily related to the goodwill of REA, which was particularly impacted by the Borders’ situation.  In addition, in the second quarter of fiscal 2011, following Borders’ filing for bankruptcy protection, the Company recorded a bad-debt provision of $750,000, or $0.04 per diluted share, fully reserving the Borders’ receivable balance. Year-to-date results also include pre-tax restructuring costs of $7.5 million, or $.39 per diluted share, recorded in the second quarter of fiscal 2011 associated with closing the Company’s smallest and least versatile manufacturing facility located in Stoughton, Massachusetts.

 

14



 

Impairment Charge

 

The Company evaluates possible impairment at the reporting unit level, which is the operating segment or one level below the operating segment, on an annual basis at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Borders has been one of REA’s most significant customers and the Borders situation has had a direct impact on REA’s sales and operating results.  On February 16, 2011, Borders filed for Chapter 11 bankruptcy protection and the Company recorded a charge of $750,000 associated with increasing the bad-debt provision for Borders. Borders was not successful in either reorganizing itself through the bankruptcy process or selling itself as a going concern.  As a result, in July 2011, Borders commenced liquidating its remaining stores and assets.  Faced with the prospect of Borders’ liquidation, significant store closings and the permanent loss of this important customer, the Company performed an impairment test on REA’s goodwill and concluded that the carrying value of REA’s goodwill exceeded its estimated fair market value.  As such, the Company concluded it was necessary to record a pre-tax impairment charge of $8.6 million in the third quarter of fiscal 2011, representing 100% of REA’s goodwill as well as approximately $200,000 of prepublication costs related to underperforming titles.

 

Restructuring Costs

 

In the second quarter of fiscal 2011, the Company recorded restructuring costs of $7.5 million associated with closing and consolidating its Stoughton, Massachusetts manufacturing facility due to the impact of technology and competitive pressures affecting the one-color paperback books in which the plant specialized.  Restructuring costs included $2.3 million for employee severance and benefit costs, $2.1 million for an early withdrawal liability from a multi-employer pension plan, and $3.1 million for lease termination and other facility closure costs.  Of the total $7.5 million of restructuring costs in the book manufacturing segment, $7.1 million was included in cost of sales and $0.4 million was included in selling and administrative expenses. Annual savings from this plant closure are projected to be approximately $4.5 million. The Company anticipates that payments of approximately $3 million associated with closing the Stoughton facility will be made by the end of fiscal 2011, $2.5 million of which occurred through the end of the third quarter.  The remaining payments will be made over periods ranging from 4 years for the building lease obligation to 20 years for the liability related to the multi-employer pension plan. At June 25, 2011, approximately $1.2 million of the restructuring payments were included in “Other current liabilities” and $3.8 million were included in “Other liabilities” in the accompanying consolidated balance sheet.  The following table depicts the accrual balances for these restructuring costs.

 

 

 

(000’s Omitted)

 

 

 

Restruc-
turing
Costs

 

Costs
Paid or
Settled

 

Accrual at
June 25,
2011

 

 

 

 

 

 

 

 

 

Employee severance and benefit costs

 

$

2,269

 

$

(1,878

)

$

391

 

Early withdrawal from multi-employer pension plan

 

2,100

 

 

2,100

 

Lease termination and other facility closure costs

 

3,103

 

(605

)

2,498

 

Total restructuring costs

 

$

7,472

 

$

(2,483

)

$

4,989

 

 

Business Acquisition

 

On January 15, 2010, the Company acquired the assets of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-based provider of solutions that streamlines the production of customized textbooks for use in colleges, universities and businesses.  The acquisition has also complemented the Company’s investment during fiscal years 2010 and 2011 in digital printing technology. The $3 million cash acquisition, which also had additional post-closing “earn out” potential payments of up to $1.2 million, of which $400,000 has been paid to date, was accounted for as a purchase, and accordingly, Highcrest Media’s financial results are included in the book manufacturing segment in the consolidated financial statements from the date of acquisition.

 

15



 

Book Manufacturing Segment

 

 

 

SEGMENT HIGHLIGHTS

 

 

 

(dollars in thousands)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 25,
2011

 

June 26,
2010

 

%
Change

 

June 25,
2011

 

June 26,
2010

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

54,997

 

$

56,838

 

-3.2

%

$

163,627

 

$

161,659

 

1.2

%

Cost of sales

 

43,445

 

46,847

 

-7.3

%

138,810

 

128,856

 

7.7

%

Gross profit

 

11,552

 

9,991

 

15.6

%

24,817

 

32,803

 

-24.3

%

As a percentage of sales

 

21.0

%

17.6

%

 

 

15.2

%

20.3

%

 

 

Selling and administrative expenses

 

6,502

 

6,264

 

3.8

%

21,018

 

20,579

 

2.1

%

Operating income

 

$

5,050

 

$

3,727

 

 

 

$

3,799

 

$

12,224

 

 

 

 

Within the book manufacturing segment, the Company focuses on three key markets: education, religious and specialty trade.  Sales to the education market rose 10% to $26.8 million in the third quarter and 6% to $68.9 million for the first nine months, compared to the same periods in fiscal 2010, primarily from sales of four-color college textbooks, including growth from the Company’s new digital print facility and from the acquisition of Highcrest Media.  Sales of elementary and high school books declined in the quarter and first nine months compared to the same periods last year reflecting continued budget pressures on school systems nationwide and fewer new textbook adoption opportunities this year.  Sales to the religious market were down 3% in the quarter to $14.9 million and up 4% to $48.0 million for the first nine months compared to the corresponding periods in the prior year.  Sales to the Company’s largest religious customer were up 6% in both the third quarter and year to date. During the first quarter of fiscal 2011, the Company entered into a multi-year agreement with this customer, a leading global missionary organization, which provides incentives for growth.  Sales to the specialty trade market decreased 23% to $11.9 million in the quarter and were down 9% to $40.2 million for the first nine months, compared with the corresponding periods last year, as publishers adjusted their ordering in reaction to Borders’ bankruptcy and related store closings.

 

In January 2011, the Company reached a multi-year book manufacturing arrangement with Pearson Education, the world’s largest educational publisher, which anticipates sales growth with this customer.  To support this growth, in June 2011, the Company installed a third HP digital inkjet press at its North Chelmsford, Massachusetts facility to provide needed capacity for four-color custom textbooks.  The second such press was installed in North Chelmsford earlier this fiscal year in October 2010.  In addition, at the end of the first quarter, installation was completed on a fourth high-speed four-color manroland press at the Company’s Kendallville, Indiana facility.  Each of these presses experienced smooth startups.

 

Cost of sales in the book manufacturing segment decreased by 7% to $43.4 million in the third quarter compared with the corresponding period last year due in part to the lower sales volume as well as cost savings achieved by closing the one-color printing facility in Stoughton in the second quarter of fiscal 2011. Cost of sales in the first nine months of fiscal 2011 increased by 8% to $138.8 million, compared to the same period last year, including $7.1 million of restructuring costs associated with closing and consolidating the Stoughton facility.  Also, depreciation expense increased by approximately $3 million in the first nine months of fiscal 2011 related to the addition of four-color offset and digital press capacity.  Gross profit increased by 16% to $11.6 million for the quarter and as a percentage of sales was 21% compared with 18% in the third quarter of fiscal 2010.  This improvement reflects cost savings from closing the Stoughton facility and a favorable sales mix in the quarter.  For the first nine months of fiscal 2011, gross profit decreased by 24% to $24.8 million compared with the corresponding period last year.  Gross profit as a percentage of sales was 15% year to date compared to 20% for the first nine months of fiscal 2010.  This decline in gross profit reflects the impact of $7.1 million of restructuring costs as well as increased depreciation expense, frictional costs related to closing the Stoughton facility and transferring existing work to other Company facilities, lower capacity utilization in the first half of this fiscal year and continued competitive pricing pressures.

 

16



 

Selling and administrative expenses for the segment increased 4% in the third quarter to $6.5 million compared to the same period last year.  On a year-to-date basis, selling and administrative expenses increased 2% to $21.0 million in the first nine months of fiscal 2011 compared to the prior-year period, reflecting $0.4 million of restructuring costs related to closing the Stoughton facility.

 

Operating income in the book manufacturing segment was $5.1 million in the third quarter compared with $3.7 million in the same period last year, reflecting the benefits of investments made in four-color technologies as well as savings from closing the Stoughton facility.  On a year-to-date basis, operating income was $3.8 million, including $7.5 million of restructuring costs related to closing and consolidating the Stoughton facility, compared with $12.2 million for the first nine months of fiscal 2010.

 

Specialty Publishing Segment

 

 

 

SEGMENT HIGHLIGHTS

 

 

 

(dollars in thousands)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 25,
2011

 

June 26,
2010

 

%
Change

 

June 25,
2011

 

June 26,
2010

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

9,872

 

$

10,854

 

-9.0

%

$

30,760

 

$

34,136

 

-9.9

%

Cost of sales

 

6,653

 

6,992

 

-4.8

%

20,446

 

21,276

 

-3.9

%

Gross profit

 

3,219

 

3,862

 

-16.6

%

10,314

 

12,860

 

-19.8

%

As a percentage of sales

 

32.6

%

35.6

%

 

 

33.5

%

37.7

%

 

 

Selling and administrative expenses

 

4,373

 

4,286

 

2.0

%

14,263

 

13,785

 

3.5

%

Operating loss

 

$

(1,154

)

$

(424

)

 

 

$

(3,949

)

$

(925

)

 

 

 

Within the Company’s specialty publishing segment, sales in the third quarter were down 9% to $9.9 million and down 10% for the first nine months to $30.8 million, compared to the corresponding periods in fiscal 2010, primarily due to lower sales to Borders. Sales to Borders in the third quarter and first nine months of fiscal 2011 were down $650,000 and $2.4 million, respectively, compared with the same periods last year, with the largest impact on sales at REA.  As a result, REA’s sales decreased 21% in the quarter to $1.4 million and were down 29% for the year to date to $4.2 million, compared to the same periods last year.  At Dover, sales were down 6% to $6.5 million for the quarter and decreased 5% to $21.2 million for the first nine months of fiscal 2011 compared with the corresponding prior-year periods. The reduction in Dover’s sales also reflects the impact of the decline in sales to Borders, which more than offset growth in both international sales and sales to online retailers.  Sales at Creative Homeowner were down 10% in the third quarter to $2.0 million and down 11% to $5.4 million for the first nine months of this year compared to the same periods last year.  These decreases were attributable to continued softness in the housing market as well as a decline in sales to Borders.

 

Cost of sales in the specialty publishing segment decreased 5% to $6.7 million for the third quarter and decreased 4% to $20.4 million for the first nine months of fiscal 2011, compared to the same periods last year, reflecting lower sales and an improved cost structure in the segment.  Gross profit in this segment decreased 17% to $3.2 million in the quarter and, as a percentage of sales, decreased to 32.6% from 35.6% in the third quarter of last year.  For the first nine months of fiscal 2011, gross profit decreased 20% to $10.3 million and, as a percentage of sales, decreased to 33.5% from 37.7% in the same period of last year.  These declines in gross profit resulted from the lower sales volume as well as changes in product and sales mix.

 

Selling and administrative expenses in this segment increased 2% to $4.4 million in the third quarter and were up 3.5%, or $478,000, to $14.3 million for the first nine months compared to the same periods last year.  In the second quarter of fiscal 2011, this segment recorded an additional bad-debt provision of $750,000 for Borders as well as $125,000 attributable to the bankruptcy of Creative Homeowner’s Canadian distributor.

 

The operating loss for the specialty publishing segment for the quarter was $1.2 million, compared to $0.4 million in last year’s third quarter.  For the first nine months of fiscal 2011, the operating loss was $3.9

 

17



 

million compared with $0.9 million in the corresponding prior-year period.  Segment results for the year to date reflect the impact of the $0.9 million receivables write-down as well as the decline in sales, primarily to Borders.

 

Total Consolidated Company

 

Interest expense, net of interest income, was $194,000 in the third quarter of fiscal 2011, compared to $130,000 of net interest expense in the same period last year.  For the first nine months, interest expense, net of interest income, was $645,000, compared to $367,000 of net interest expense in the first nine months of last year.   Average debt under the revolving credit facility in the third quarter of fiscal 2011 was approximately $25.1 million at an average annual interest rate of 0.7%, generating interest expense of approximately $45,000.  Average debt under the revolving credit facility in the third quarter of last year was approximately $16.4 million at an average annual interest rate of 0.8%, generating interest expense of approximately $32,000.  Average debt under the revolving credit facility in the first nine months of fiscal 2011 was approximately $22.5 million at an average annual interest rate of 0.7%, generating interest expense of approximately $125,000.  Average debt under the revolving credit facility in the first nine months of last year was approximately $13.4 million at an average annual interest rate of 0.8%, generating interest expense of approximately $76,000. Interest expense also includes commitment fees and other costs associated with maintaining the Company’s $100 million revolving credit facility.  In addition, the Company entered into a four-year term loan in March 2010 providing up to $8 million to finance the purchase of digital print assets.  At June 25, 2011, $5.3 million was borrowed under this term loan, which added $25,000 of interest expense in the third quarter and $132,000 year to date to the corresponding prior-year periods.  Interest capitalized in the first nine months of this year was $30,000 compared with $39,000 in the corresponding period last year.

 

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known and applies that rate to its ordinary year-to-date earnings or losses. The effect of discrete items, such as unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The effective tax rates for the first nine months of fiscal 2011 and 2010 were 39.7% and 38.5%, respectively. The higher rate in fiscal 2011 resulted in part from the state tax impact of the impairment and restructuring charges.

 

For purposes of computing net income or loss per diluted share, weighted average shares outstanding increased by approximately 34,000 shares and 41,000 shares from last year’s third quarter and first nine months, respectively. In the third quarter and first nine months of fiscal 2011, approximately 36,000 and 34,000 potentially dilutive shares, respectively, were excluded due to the Company incurring a loss in those periods.  The increase in weighted average shares outstanding for the quarter and year to date reflects shares issued under the Company’s stock plans.

 

Liquidity and Capital Resources:

 

During the first nine months of fiscal 2011, operations provided $16.5 million of cash, compared to $16.4 million in the same period last year.  The net loss was $6.3 million for the first nine months of this year and included a non-cash, after-tax impairment charge of $5.2 million as well as after-tax restructuring costs of $4.7 million associated with the Stoughton plant closing.  Depreciation and amortization year to date were $17.4 million, compared with $15.5 million in the corresponding period last year.  Working capital used $3.8 million of cash in the first nine months of fiscal 2011 compared with $6.4 million in the prior year-to-date period.

 

Investment activities in the first nine months of fiscal 2011 used $15.1 million of cash. Capital expenditures were $11.7 million, primarily related to the Company’s investment in two HP digital inkjet presses at its North Chelmsford, Massachusetts facility and its fourth four-color manroland press at the Kendallville, Indiana facility.  For the entire fiscal year, capital expenditures are expected to be approximately $15 to $17 million.  Prepublication costs were $3.2 million, comparable to the first nine months of last year.  For the full fiscal year, prepublication costs are projected to be approximately $4 million.

 

Financing activities for the first nine months of fiscal 2011 used approximately $1.5 million of cash.  Cash dividends of $7.6 million were paid and borrowings increased by $5.9 million for the year to date.  At June 25, 2011, borrowings under a term loan used to finance the purchase of the Company’s new digital print assets were $5.3 million, with $2.1 million at a fixed annual interest rate of 3.9% and $3.2 million at a fixed annual interest rate of 3.6%.  The Company also has a $100 million long-term revolving credit facility

 

18



 

in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%.  At June 25, 2011, the Company had $24.3 million in borrowings under this facility at an interest rate of 0.7%.  The revolving credit facility, which matures in 2013, contains restrictive covenants including provisions relating to the maintenance of working capital, the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all such covenants at June 25, 2011.  The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion.  The revolving credit facility is used by the Company for both its long-term and short-term financing needs.  The Company believes that its cash on hand, cash from operations and the available credit facility will be sufficient to meet its cash requirements through 2011.

 

The following table summarizes the Company’s contractual obligations and commitments at June 25, 2011 to make future payments as well as its existing commercial commitments.

 

 

 

 

 

(000’s Omitted)

 

 

 

 

 

Payments due by period (1)

 

 

 

 

 

Less than

 

1 to 3

 

3 to 5

 

More than

 

 

 

Total

 

1 Year

 

Years

 

Years

 

5 Years

 

Contractual Payments:

 

 

 

 

 

 

 

 

 

 

 

Long-term debt (2)

 

$

29,526

 

$

1,758

 

$

27,768

 

$

 

$

 

Operating leases (3)

 

8,196

 

1,340

 

1,688

 

1,455

 

3,713

 

Purchase obligations (4)

 

1,478

 

1,478

 

 

 

 

Other liabilities (5)

 

7,415

 

 

2,651

 

1,384

 

3,380

 

Total

 

$

46,615

 

$

4,576

 

$

32,107

 

$

2,839

 

$

7,093

 

 


(1) Amounts do not include interest expense.

(2) Includes the Company’s revolving credit facility, which has a maturity date of March 2013.

(3) Represents amounts at September 25, 2010, except for the Stoughton, Massachusetts building lease obligation, which was included in “Other liabilities” at June 25, 2011.

(4) Represents capital commitments.

(5) Includes approximately $3.8 million of restructuring costs related to closing the Stoughton, Massachusetts facility.

 

New Accounting Pronouncements

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued amendments to disclosure requirements for common fair value measurement. These amendments, effective for interim and annual periods beginning on or after December 15, 2011, result in common definitions of fair value and common requirements for measurement of and disclosure requirements between accounting principles generally accepted in the United States and International Financial Reporting Standards. Consequently, the amendments change some fair value measurement principles and disclosure requirements. The implementation of this amended accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In June 2011, the FASB issued amendments to disclosure requirements for the presentation of comprehensive income. This guidance, effective for the interim and annual periods beginning on or after December 15, 2011, requires the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The implementation of this amended accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

Forward-Looking Information:

 

This Quarterly Report on Form 10-Q includes forward-looking statements.  Statements that describe future expectations, plans or strategies are considered “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements.  Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated.  Some of the factors that could affect actual results are discussed in Item 1A of this Form 10-Q and include, among others, changes in customers’ demand for the Company’s products, including seasonal changes in customer orders and shifting orders to lower cost regions, changes in market growth rates, changes in

 

19



 

raw material costs and availability, pricing actions by competitors and other competitive pressures in the markets in which the Company competes, consolidation among customers and competitors, insolvency of key customers or vendors, changes in the Company’s labor relations, success in the execution of acquisitions and the performance and integration of acquired businesses including carrying value of intangible assets, restructuring and impairment charges required under generally accepted accounting principles, changes in operating expenses including medical and energy costs, changes in technology including migration from paper-based books to digital, difficulties in the start up of new equipment or information technology systems, changes in copyright laws, changes in consumer product safety regulations, changes in environmental regulations, changes in tax regulations, changes in the Company’s effective income tax rate and general changes in economic conditions, including currency fluctuations, changes in interest rates, changes in consumer confidence, changes in the housing market, and tightness in the credit markets.  Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate.  The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

 

Item 3.                    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes from the information concerning the Company’s “Quantitative and Qualitative Disclosures About Market Risk” as previously reported in the Company’s Annual Report on Form 10-K for the year ended September 25, 2010.

 

Item 4.                    CONTROLS AND PROCEDURES

 

(a)       Evaluation of disclosure controls and procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b)       Changes in internal controls over financial reporting

 

There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

20



 

PART II.  OTHER INFORMATION

 

Item 1.                    Legal Proceedings

 

None.

 

Item 1A.                 Risk Factors

 

The Company’s consolidated results of operations, financial condition and cash flows can be adversely affected by various risks.  Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control.  We discuss below the risks that we believe are material.  You should carefully consider all of these factors.  For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement contained in this report, see Forward-Looking Information in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Industry competition and consolidation may increase pricing pressures and adversely impact our margins or result in a loss of customers.

 

The book industry is extremely competitive.  In the book manufacturing segment, consolidation over the past few years of both customers and competitors within the markets in which the Company competes has caused downward pricing pressures.  In addition, excess capacity and competition from printing companies in lower cost countries may increase competitive pricing pressures.  Furthermore, some of our competitors have greater sales, assets and financial resources than us, particularly those in foreign countries, who may derive significant advantages from local governmental regulation, including tax holidays and other subsidies.  All or any of these competitive pressures could affect prices or customers’ demand for our products, impacting our profit margins and/or resulting in a loss of customers and market share.

 

A reduction in orders from, or the loss of, any of our significant customers may adversely impact our operating results.

 

We derived approximately 47% and 44% of our fiscal 2010 and 2009 revenues, respectively, from two major customers.  We expect similar concentrations in fiscal 2011.  We do business with these customers on a purchase order basis and they are not bound to purchase at particular volume levels.  As a result, any of these customers could determine to reduce their order volume with us.  A significant reduction in order volumes from, or the loss of, either of these customers could have a material adverse effect on our results of operations and financial condition.

 

Because a significant portion of publishing sales are made to or through retailers and distributors, the insolvency of any of these parties could have a material impact on the Company’s financial results.

 

In our specialty publishing segment, sales to retailers and distributors are highly concentrated on a small group, including Borders Group, Inc. (“Borders”). On February 16, 2011, Borders filed for Chapter 11 bankruptcy protection and we recorded a charge of $750,000 associated with increasing the bad-debt provision for Borders. Sales to Borders for our publishing segment for the first nine months of fiscal 2011 declined $2.4 million compared to the corresponding period of fiscal 2010. In addition, the Company experienced a 9% reduction in sales in the trade market of its book manufacturing segment in the first nine months of fiscal 2011 compared with the same period last year.

 

Borders was not successful in either reorganizing itself through the bankruptcy process or selling itself as a going concern.  As a result, in July 2011, Borders commenced liquidating its stores and assets.  Faced with the prospect of losing such an important customer, the Company tested  REA’s goodwill and concluded that the carrying value of REA’s goodwill exceeded its estimated fair market value.  As such, the Company recorded a pre-tax impairment charge of $8.6 million in the third quarter of fiscal 2011, representing 100% of REA’s goodwill as well as approximately $200,000 of prepublication costs related to underperforming titles.

 

Similarly, any bankruptcy, liquidation, insolvency or other failure of another major retailer or distributor could also have a material impact on the Company.

 

21



 

The substitution of electronic delivery for printed materials may adversely affect our business.

 

Electronic delivery of documents and data, including the online distribution and hosting of media content, offers alternatives to traditional delivery of printed documents.  Widespread consumer acceptance of electronic delivery of books is uncertain, as is the extent to which consumers are willing to replace print materials with online hosted media content.  To the extent that our customers’ acceptance of these electronic alternatives should continue to grow, demand for our printed products may be adversely affected.

 

Declines in general economic conditions may adversely impact our business.

 

Economic conditions have the potential to impact our financial results significantly.  Within the book manufacturing and specialty publishing segments, we may be adversely affected by the current worldwide economic downturn, including as a result of changes in government, business and consumer spending.  Examples of how our financial results may be impacted include:

 

·      Fluctuations in federal or state government spending on education, including a reduction in tax revenues due to the current economic environment, could lead to a corresponding decrease in the demand for educational materials, which are produced in our book manufacturing segment and comprise a portion of our publishing products.

 

·      Consumer demand for books can be impacted by reductions in disposable income when costs such as electricity and gasoline reduce discretionary spending.

 

·      Tightness in credit markets may result in customers delaying orders to reduce inventory levels and may impact their ability to pay their debts as they become due and may disrupt supplies from vendors, and may result in customers becoming insolvent.

 

·      Changes in the housing market may impact the sale of Creative Homeowner’s products.

 

·      Reduced fundraising by religious customers may decrease their order levels.

 

·      A slowdown in book purchases may result in retailers returning an unusually large number of books to publishers who, in turn reduce their reorders.

 

A failure to keep pace with rapid industrial and technological change may have an adverse impact on our business.

 

The printing industry is in a period of rapid technological evolution.  Our future financial performance will depend, in part, upon the ability to anticipate and adapt to rapid industrial and technological changes occurring in the industry and upon the ability to offer, on a timely basis, services that meet evolving industry standards.  If we are unable to adapt to such technological changes, we may lose customers and may not be able to maintain our competitive position. In addition, we may encounter difficulties in the implementation and start-up of new equipment and technology.

 

We are unable to predict which of the many possible future product and service offerings will be important to establish and maintain a competitive position or what expenditures will be required to develop and provide these products and services.  We cannot assure investors that one or more of these factors will not vary unpredictably, which could have a material adverse effect on us. In addition, we cannot assure investors, even if these factors turn out as we anticipate, that we will be able to implement our strategy or that the strategy will be successful in this rapidly evolving market.

 

Our operating results are unpredictable and fluctuate significantly, which may adversely affect our stock price.

 

Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are outside of our control. Factors that may affect our future operating results include:

 

·      the timing and size of the orders for our books;

 

·      the availability of markets for sales or distribution by our major customers;

 

·      the lengthy and unpredictable sales cycles associated with sales of textbooks to the elementary and high school market;

 

22



 

·      our customers’ willingness and success in shifting orders from the peak textbook season to the off-peak season to even out our manufacturing load over the year;

 

·      fluctuations in the currency market may make manufacturing in the United States more or less attractive and make equipment more or less expensive for us to purchase;

 

·      issues that might arise from the integration of acquired businesses, including their inability to achieve expected results; and

 

·      tightness in credit markets affecting the availability of capital for ourselves, our vendors, and/or our customers.

 

As a result of these and other factors, period-to-period comparisons of our operating results are not necessarily meaningful or indicative of future performance. In addition, the factors noted above may make it difficult for us to forecast and provide in a timely manner public guidance (including updates to prior guidance) related to our projected financial performance. Furthermore, it is possible that in future quarters our operating results could fall below the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could decline.

 

Our financial results could be negatively impacted by impairments of goodwill or other intangible assets, or other long-lived assets.

 

We perform an annual assessment for impairment of goodwill and other intangible assets, as well as other long-lived assets, at the end of our fiscal year or whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value.  A downward revision in the fair value of one of our acquired businesses could result in impairments of goodwill and non-cash charges.  Any impairment charge could have a significant negative effect on our reported results of operations.  For example, at the end of the third quarter of fiscal 2011, the Company determined that the fair value of REA was below its carrying value and a pre-tax impairment charge of $8.4 million was recorded, which represented 100% of REA’s goodwill.

 

Fluctuations in the cost and availability of paper and other raw materials may cause disruption and impact margins.

 

Purchases of paper and other raw materials represent a large portion of our costs.  In our book manufacturing segment, paper is normally supplied by our customers at their expense or price increases are passed through to our customers.  In our specialty publishing segment, cost increases have generally been passed on to customers through higher prices or we have substituted a less expensive grade of paper.  However, if we are unable to continue to pass on these increases or substitute a less expensive grade of paper, our margins and profits could be adversely affected.

 

Availability of paper is important to both our book manufacturing and specialty publishing segments.  Although we generally have not experienced difficulty in obtaining adequate supplies of paper, unexpected changes in the paper markets could result in a shortage of supply.  If this were to occur in the future, it could cause disruption to the business or increase paper costs, adversely impacting either or both net sales or profits.

 

Fluctuations in the costs and availability of other raw materials could adversely affect operating costs or customer demand and thereby negatively impact our operating results, financial condition or cash flows.

 

In addition, fluctuations in the markets for paper and raw materials may adversely affect the market for our waste byproducts, including recycled paper, used plates and used film, and therefore adversely affect our income from such sales.

 

Energy costs and availability may negatively impact our financial results.

 

Energy costs are incurred directly to run production equipment and facilities and indirectly through expenses such as freight and raw materials such as ink.  In a competitive market environment, increases to these direct and indirect energy related costs might not be able to be passed through to customers through price increases or mitigated through other means.  In such instances, increased energy costs could adversely impact operating costs or customer demand.  In addition, interruption in the availability of

 

23



 

energy could disrupt operations, adversely impacting operating results.

 

Inadequate intellectual property protection for our publications could negatively impact our financial results.

 

Certain of our publications are protected by copyright, primarily held in the Company’s name.  Such copyrights protect our exclusive right to publish the work in the United States and in many other countries for specified periods.  Our ability to continue to achieve anticipated results depends in part on our ability to defend our intellectual property against infringement.  Our operating results may be adversely affected by inadequate legal and technological protections for intellectual property and proprietary rights in some jurisdictions and markets.  In addition, some of our publications are of works in the public domain, for which there is nearly no intellectual property protection.  Our operating results may be adversely affected by the increased availability of such works elsewhere, including on the Internet, either for free or for a lower price.

 

A failure to maintain or improve our operating efficiencies could adversely impact our profitability.

 

Because the markets in which we operate are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability.  Although we have been able to expand our capacity, improve our productivity and reduce costs in the past, there is no assurance that we will be able to do so in the future.  In addition, reducing operating costs in the future may require significant initial costs to reduce headcount, close or consolidate operations, or upgrade equipment and technology.

 

Changes in postal rates and postal regulations may adversely impact our business.

 

Postal costs are a significant component of our direct marketing cost structure and postal rate changes can influence the number of catalogs that we may mail.  In addition, increased postal rates can impact the cost of delivering our products to customers.  The occurrence of either of these events could adversely affect consumer demand and our results of operations.

 

Our facilities are subject to stringent environmental laws and regulations, which may subject us to liability or increase our costs.

 

We use various materials in our operations that contain substances considered hazardous or toxic under environmental laws.  In addition, our operations are subject to federal, state, and local environmental laws relating to, among other things, air emissions, waste generation, handling, management and disposal, waste water treatment and discharge and remediation of soil and groundwater contamination.  Permits are required for the operation of certain of our businesses and these permits are subject to renewal, modification and in some circumstances, revocation.  Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA,” commonly referred to as “Superfund”), and similar state laws and regulations, we may be liable for costs and damages relating to soil and groundwater contamination at off-site disposal locations or at our facilities.  Future changes to environmental laws and regulations may give rise to additional costs or liabilities that could have a material adverse impact on our financial position and results of operations.

 

A failure to successfully integrate acquired businesses may have a material adverse effect on our business or operations.

 

Over the past several years, we have completed four acquisitions, including Highcrest Media in fiscal 2010, Moore Langen and Creative Homeowner in fiscal 2006, and REA in fiscal 2004, and may continue to make acquisitions in the future.  We believe that these acquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of these acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner.  The challenges involved in successfully integrating acquisitions include:

 

·      we may find that the acquired company or assets do not further our business strategy, or that we overpaid for the company or assets, or that economic conditions have changed, all of which may result in a future impairment charge;

 

·      we may have difficulty integrating the operations and personnel of the acquired business and may

 

24



 

have difficulty retaining the customers and/or the key personnel of the acquired business;

 

·      we may have difficulty incorporating and integrating acquired technologies into our business;

 

·      our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing diverse locations;

 

·      we may have difficulty maintaining uniform standards, controls, procedures and policies across locations;

 

·      an acquisition may result in litigation from terminated employees of the acquired business or third parties; and

 

·      we may experience significant problems or liabilities associated with technology and legal contingencies of the acquired business.

 

These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time.  From time to time, we may enter into negotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significant diversion of management’s time from our business as well as significant out-of-pocket costs. Tightness in credit markets may also affect our ability to consummate such acquisitions.

 

The consideration that we pay in connection with an acquisition could affect our financial results.  If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash and credit facilities to consummate such acquisitions.  To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, our existing stockholders may experience dilution in their share ownership in our company and their earnings per share may decrease.  In addition, acquisitions may result in the incurrence of debt, large one-time write-offs and restructuring charges.  They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges.  Any of these factors may materially and adversely affect our business and operations.

 

A failure to hire and train key executives and other qualified employees could adversely affect our business.

 

Our success depends, in part, on our ability to continue to retain our executive officers and key management personnel.  Our business strategy also depends on our ability to attract, develop, motivate and retain employees who have relevant experience in the printing and publishing industries.  There can be no assurance that we can continue to attract and retain the necessary talented employees, including executive officers and other key members of management and, if we fail to do so, it could adversely affect our business.

 

A lack of skilled employees to manufacture our products may adversely affect our business.

 

If we experience problems hiring and retaining skilled employees, our business may be negatively affected.  The timely manufacture and delivery of our products requires an adequate supply of skilled employees, and the operating costs of our manufacturing facilities can be adversely affected by high turnover in skilled positions.  Accordingly, our ability to increase sales, productivity and net earnings could be impacted by our ability to employ the skilled employees necessary to meet our requirements.  Although our book manufacturing locations are geographically dispersed, individual locations may encounter strong competition with other manufacturers for skilled employees.  There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities.  In addition, unions represent certain groups of employees at one of our locations, and periodically, contracts with those unions come up for renewal.  The outcome of those negotiations could have an adverse affect on our operations at that location.  Also, changes in federal and/or state laws may facilitate the organization of unions at locations that do not currently have unions, which could have an adverse affect on our operations.

 

We are subject to various laws and regulations that may require significant expenditures.

 

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Consumer Product Safety Act, the rules and regulations of the Consumer Products Safety Commission as well as laws and regulations relating to personal information.  We may be

 

25



 

required to make significant expenditures to comply with such governmental laws and regulations and any amendments thereto. Complying with existing or future laws or regulations may materially limit our business and increase our costs.  Failure to comply with such laws may expose us to potential liability and have a material adverse effect on our results of operations.

 

Item 2.                    Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.                    Defaults Upon Senior Securities

 

None.

 

Item 4.                    Removed and Reserved

 

Item 5.                    Other Information

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 

Item 6.                    Exhibits

 

Exhibit No.

 

Description

 

 

 

31.1*

 

Certification of Chief Executive Officer

 

 

 

31.2*

 

Certification of Chief Financial Officer

 

 

 

32.1**

 

Certification of Chief Executive Officer

 

 

 

32.2**

 

Certification of Chief Financial Officer

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*    Filed herewith.

**  Furnished herewith.

 

26



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

COURIER CORPORATION

(Registrant)

 

 

 

 

 

 

 August 3, 2011

 

By:

s/James F. Conway III

Date

 

 

James F. Conway III

 

 

 

Chairman, President and

 

 

 

  Chief Executive Officer

 

 

 

 

 August 3, 2011

 

By:

s/Peter M. Folger

Date

 

 

Peter M. Folger

 

 

 

Senior Vice President and

 

 

 

  Chief Financial Officer

 

 

 

 

 August 3, 2011

 

By:

s/Kathleen M. Leon

Date

 

 

Kathleen M. Leon

 

 

 

Vice President and

 

 

 

  Controller

 

27



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

31.1*

 

Certification of Chief Executive Officer

 

 

 

31.2*

 

Certification of Chief Financial Officer

 

 

 

32.1**

 

Certification of Chief Executive Officer

 

 

 

32.2**

 

Certification of Chief Financial Officer

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*     Filed herewith.

**   Furnished herewith.

 

28


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